The Impact of Board Governance on Corporate Risk-Taking Evidence from the Egyptian Stock Market

The research aimed to examine the impact of board governance determinants on corporate risk-taking, using a sample of non-financial companies listed on the Egyptian Stock Exchange (EGX) from (2013-2019). The longitudinal regression models of the panel data method were used to test the research hypotheses through fundamental and additional analysis and sensitivity test. The models were run on (SPSS) version No. (23) and (E-Views) version No. (9).
The results of the fundamental analysis indicated that there was a positive (negative) effect of board size (board independence), and there was no effect of CEO duality, on corporate risk-taking using stock returns volatility proxy.
The results of the additional analysis indicated an increase in the explanatory ability of the model in the presence of control variables, and there is an effect of the company's age and market to book - as two control variables – on corporate risk-taking. Also, the results of the main and sub research hypothesis are similar to the results of the fundamental analysis.
The results of the sensitivity test indicated that there was a positive (negative) effect of board size (CEO duality), and there was no effect of the board independence, on corporate risk-taking using ROA and ROE volatility proxies, which are different from the fundamental analysis results.
Based on the previous results, the research recommends activating what was stated in the Egyptian governance guide, the necessity of achieving the board independence, to ensure the effectiveness of the monitoring process over the board’s work, as well as the necessity of separating the positions of the CEO and chairman of the Board, in order to mitigate the negative effects of the agency problem. The study contributes to reducing the research gap in the accounting literature on the subject area of ​​study, by inferring that the board size and independence enables better monitor on the CEO in decision-making process, based on a more appropriate level of risk evaluation, which leads to mitigating the potential negative impacts of the agency problem. The results are expected to be of interest to investors, managers, financial analysts, and other stakeholders.